Preferred Cost – Using Google's New Ad Pricing Technique to Reduce Your Risk

Traditionally, bidding on clicks in a search engine has been a hit-or-miss proposition. You set the MAXIMUM you are willing to pay for a click, and then your actual click cost usually ends up well below that. To play the game, you have to be willing to bid high to get your actual cost about where you want it. But you also run the risk of getting burned by being forced to pay what you bid.

Google has released a new ad pricing method that reduces your risk – preferred cost bidding. In this new method, you don’t specify a maximum bid – you specify an AVERAGE price you are willing to pay for clicks to your site.

For example, if you know that, based on your historical conversion rate, you can afford to pay a maximum of $.50 per click to achieve your desired return on investment, then you can set a preferred cost per click of $.50. Google will then adjust your ad ranking on the fly to get your average cost per click as close to $.50 as possible. You are freed from worrying about getting burned by bidding more than you really want to pay. It also frees you from having to constantly monitor your bids.

To make this technique work, obviously, you have to understand your numbers. You need to know how many people who click through to your web site become customers and how much profit you earn on them. If you know the lifetime value of your customer, that’s even better. But as long as you know how much you can afford to pay to generate a sale and what your conversion rate is, you can figure out how much you can afford to pay for a click, and use that as your preferred cost.

We think there is a lot of potential in Google’s new pricing scheme and we will definitely be checking it out. If you have enough information about your business, then we suggest you do the same.

If you would like some help managing your Google campaign bids, contact Work Media at 888-299-4837 or email Info@WorkMedia.net.